For someone who created a mantra of not investing in any business he did not understand, that's earth-shattering. Until you consider the next announcement.
AIG just announced US$62b of losses in the 4th quarter of 2008, after the US government provided a US$150b bailout! Another US$30b bailout plan was announced by the US government yesterday, just before the US$62b loss was revealed to a stunned US stock market.
Now, I'm not really sure if Warren Buffett has much invested in AIG, but there was definitely news that he was into insurance in 2008. Hmmmmm.....Anybody out there with information?
Honestly, such amounts of money are beyond my comprehension. But, does anybody really understand the mechanics of restoring confidence in any marketplace at all? Or even understand what is really going on? Insurance companies' premiums, from what little I know, are based on carefully compiled statistics as to the risk of any insurable event happening. I also happen to know that the mathematicians making the computations are highly trained brainiacs. I don't think they got the numbers wrong. Which leaves the possibility of fraud. Given the massive scale of fraud being uncovered once the markets crashed, the insurance companies must have paid off tonnes of money for claims against the ratings agencies, bankrupt banks and other financial institutions once thought "too big to fall". If that is right, bailouts might simply not be possible. You bail out ratings agencies and banks, you bankrupt the insurers. You help out the insurers, more victims just keep coming out. Remember funds which guarantee some sort of capital protection or other? Probably insurance-linked.
If you think this is getting too sophisticated, you're probably right. The head hurts. Maybe, just maybe, let's go back to simpler stuff. Mattress savers, upgrade to banks. Bank savers (guys into fixed deposits only), upgrade to government bonds. Stop there. Don't just give it to guys who have shown that they are going to buy corporate jets, throw lavish parties etc. Give or lend directly to your businessmen. Better still, earmark it for salary payments or CPF. Then the entrepreneur has to make sure he turns a profit.
Somewhere, somehow, I think the true positive out of this crisis may well be that until people believe that big money is being paid to ethical (or make that financially responsible) people, the much needed market confidence will not happen.
Ok, photo-op.
Ouch! Migraine!
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